Tax on Sales/Purchases: Input and Output Tax Tax on Sales/Purchases: Input and Output Tax
Input and output tax is calculated on revenue or expense items (base amount). The tax amounts are posted to separate tax accounts and refunded by the tax office (input tax) or paid to the tax office (output tax). The tax percentage rates vary from country to country and are determined when you define the tax codes.
The tax amount is determined as a percentage of the base amount, meaning that the tax amount is included in the invoice amount. Given a tax rate of 15 percent, the invoice amount or the total of the expense or revenue items and the tax items together would be 115 percent. To calculate the tax amount, the invoice amount is divided by 115 and multiplied by 15. The result is an amount corresponding to 15 percent of the base amount.
The tax amounts are automatically posted to tax accounts. The system always posts the amounts to the side of the account to which the other G/L account amounts are also posted. See also
Example: Posting Output Tax and Example: Posting Input Tax.The input tax can be completely or partially non-deductible. This part cannot be claimed from the tax office. The amount can be posted to a separate expense account, or it can be distributed to the G/L account and asset line items.